Introduction

A train was speeding along the tracks in 19th-century England when a passenger suddenly started smashing windows and waving a pistol in the air. People believed his actions were caused by what was, at the time, a new and unfamiliar form of transportation. Doctors posited the rattling motion and noise of trains could cause passengers to act erratically, creating the short-lived but popular myth of "railway madness."

In this episode of Choiceology with Katy Milkman, we look at how people often overreact to poor quality or incomplete information.

A sudden explosion in 1889 ripped apart the USS Maine, the United States' largest warship at the time. The ship sank, killing more than half of the sailors on board. The Maine had been anchored in Cuba, and despite having little proof, the American public immediately blamed the Spanish for the sinking. Newspaper editors published headlines such as "Remember the Maine, to Hell with Spain!" Nearly a hundred years later, an underwater investigation would reveal what likely caused the explosion.

Historian David Silbey recounts how public pressure from this tragedy pushed the United States to make a decision that would have lasting consequences for the world. 

David Silbey is a military historian and adjuncta professor and director of teaching and learning at Cornell University. He is also the author of A War of Frontier and Empire: The Philippine-American War, 1899-1902. His new book is called Wars Civil and Great: The American Experience in the Civil War and World War I. 

Next, Katy speaks with Ned Augenblick about his research that shows people's tendency to overreact to weakly supported information and underreact to strongly supported information. 

You can read more in the paper he co-authored with Eben Lazarus and Michael Thaler, called "Overinference from Weak Signals and Underinference from Strong Signals." 

Ned Augenblick is a professor in the Economic Analysis and Policy Group at the Haas School of Business at the University of California, Berkeley.

Choiceology is an original podcast from Charles Schwab. 

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Important Disclosures

The comments, views, and opinions expressed in the presentation are those of the speakers and do not necessarily represent the views of Charles Schwab.

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All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Supporting documentation for any claims or statistical information is available upon request. 

Investing involves risk including loss of principal.

The book How to Change: The Science of Getting from Where You Are to Where You Want to Be is not affiliated with, sponsored by, or endorsed by Charles Schwab & Co., Inc. (CS&Co.). Charles Schwab & Co., Inc. (CS&Co.) has not reviewed the book and makes no representations about its content.

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